For many years I have tracked the relationship between a market’s employment change over the previous 12 months and the number of residential permits issued over the same period. Employment growth soaks up supply additions, so when permits exceed the number of jobs created multifamily markets almost always weaken. Conversely, when more jobs are being created than housing units added, vacancy rates decrease and rents increase.
The November numbers for Los Angeles are very bad:
(Click on charts to open larger versions in a new window)
More than 170,000 jobs have been lost in Los Angeles over the last year, and at the same time more than 15,000 units were added, almost a –11 to 1 ratio. Look for significant softening in the multifamily market.
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